Steve Forbes writes Gold and the Wicked Magicians in the November 19, 2012 issues of Forbes.
Despite thousands of years of experience to the contrary, central bankers and countless policymakers and economists believe that money manipulation can stimulate and wisely guide an economy.
It’s a destructive delusion. The world today would be an immensely richer place were it not for these hubristic notions that a handful of people can keep an economy rolling smoothly with minimal unemployment.
John Maynard Keynes was the chief promoter of the illusion that economists could wave a magic wand via monetary and fiscal policies and all would be well. This fantasy is at the center of our economic woes today, which will be taking a turn for the worse later this year and in early 2013.
The idea that the economy is similar to a piece of machinery is preposterous–it is simply the aggregation of literally billions of transactions between individuals and between businesses. And, as never before, national economies are not islands unto themselves. Each country has its own economic policies, but the conditions in each country will be impacted by what happens elsewhere.
Another thing that should make us leery of this Keynesian idea of guidance is the disruption that routinely comes from innovation. The rise of fiber optics dramatically reduced the value of all the copper wire owned by incumbent telephone companies. The iPod made countless traditional music stores obsolete. Netflix shattered Blockbuster’s once happy existence. Wal-Mart’s legendary efficiency led to numerous small-store closings, and its supermarket business forced traditional chains to undergo major, painful restructurings, if not occasional bankruptcies. I’m old enough to remember once ubiquitous things like typewriters and pay phones.
There’s no way economic models can capture–much less predict–this constant innovation, turbulence and turmoil. The directions of innovation are unpredictable. All that governments can do is provide an environment in which these things can happen. How? With the rule of law, stable money, a benign tax regime and commonsense regulation.
Gold may be an archaic relic to use as a basis for a modern monetary system, but it enforces a discipline that we have yet to find anywhere else.